Facts of the Case

The petitioner, M/s. Vadivel Pyrotech Private Limited, engaged in the manufacture and sale of fireworks, was registered under the Tamil Nadu Goods and Services Tax Act, 2017. During scrutiny of its GST returns for FY 2018-19 under Section 61, the department issued Form GST ASMT-10 highlighting certain discrepancies. The petitioner responded by filing Form GST ASMT-11, submitted explanations, and also paid applicable interest through GST DRC-03.

Subsequently, without issuing a fresh ASMT-10 regarding several new discrepancies, the department directly uploaded GST DRC-01 and passed an assessment order in GST DRC-07 under Section 74, raising demands relating to turnover differences, denial of input tax credit, blocked credit, reverse charge liability, and other issues. The petitioner contended that these new allegations had never been communicated during scrutiny proceedings and that neither the show cause notice nor the assessment order had been properly served. The petitioner therefore challenged the assessment before the Madras High Court alleging violation of the statutory procedure and principles of natural justice. 

Issues Involved

  1. Whether proceedings under Section 74 can be initiated on issues that were never pointed out in Form GST ASMT-10 issued during scrutiny under Section 61.
  2. Whether issuance of ASMT-10 is mandatory before initiating proceedings through DRC-01 arising out of return scrutiny.
  3. Whether failure to follow the procedure prescribed under Rule 99 invalidates the assessment.
  4. Whether non-service of notices and assessment orders violates the principles of natural justice.

Petitioner's Arguments

  • The scrutiny proceedings under Section 61 were completed after submission of ASMT-11, and the department could not introduce entirely new discrepancies through DRC-01 without first issuing a corresponding ASMT-10.
  • The issues forming the basis of the assessment order were completely different from those communicated during scrutiny.
  • The mandatory procedure prescribed under Rule 99 had not been followed.
  • Neither the show cause notice nor the assessment order was properly served, thereby denying the petitioner an effective opportunity of hearing.
  • The entire proceedings suffered from violation of statutory provisions as well as principles of natural justice.


Respondent's Arguments

The Revenue contended that the assessment had been completed under the GST provisions. However, during the hearing, the Government Pleader admitted that no separate ASMT-10 had been issued regarding the discrepancies ultimately forming the basis of the DRC-01 notice and DRC-07 order. The department therefore sought liberty to issue the appropriate ASMT-10 and conduct fresh proceedings in accordance with law.


Court Order / Findings

The Madras High Court held that:

  • Section 61 read with Rule 99 prescribes a mandatory procedure for scrutiny of returns.
  • Whenever discrepancies are noticed during scrutiny, they must first be communicated through Form GST ASMT-10.
  • If the explanation furnished in ASMT-11 is unsatisfactory, only thereafter can proceedings under Sections 65, 66, 67, 73 or 74 be initiated.
  • Where proceedings under DRC-01 arise from scrutiny under Section 61, they must necessarily be preceded by a valid ASMT-10 covering the very discrepancies proposed in the show cause notice.
  • Since the issues raised in DRC-01 and DRC-07 were completely different from those contained in the original ASMT-10, the statutory procedure had been violated.
  • When a statute prescribes a particular manner of performing an act, that procedure must be strictly followed.
  • Consequently, the assessment order dated 09.05.2022 was set aside and the matter was remanded to the Assessing Officer with liberty to issue a fresh ASMT-10 and proceed strictly in accordance with law after granting adequate opportunity to the petitioner.

 

Important Clarification

  • ASMT-10 is mandatory before initiating adjudication arising from scrutiny under Section 61.
  • Authorities cannot raise new allegations in DRC-01 unless those discrepancies were first communicated during scrutiny.
  • Any deviation from the procedure prescribed under Rule 99 can render the entire assessment invalid.
  • Proceedings under Section 74 must strictly comply with the statutory sequence contemplated under the GST Act.
  • Compliance with the principles of natural justice remains mandatory even where notices are uploaded electronically.

Sections Involved

  • Section 16 – Eligibility and Conditions for Input Tax Credit (ITC)
  • Section 50 – Interest on Delayed Payment of Tax
  • Section 61 – Scrutiny of Returns
  • Section 65 – Audit by Tax Authorities
  • Section 66 – Special Audit
  • Section 67 – Inspection, Search and Seizure
  • Section 74 – Determination of Tax involving Fraud, Wilful Misstatement or Suppression of Facts
  • Section 169 – Service of Notice and Orders
  • Rule 99 – Scrutiny of Returns
  • Rule 142(1A) – Communication before issuance of Show Cause Notice
  • Form GST ASMT-10
  • Form GST ASMT-11
  • Form GST DRC-01
  • Form GST DRC-07

Related Case Law

  • M/s. Vadivel Pyrotech Private Limited vs Assistant Commissioner (ST) (Madras High Court)
  • W.P. No. 27651 of 2021 (Madras High Court) – The Court observed that, owing to technical issues on the GST portal, authorities should simultaneously serve notices through registered post/speed post/courier along with uploading them on the GST portal until technical issues are fully resolved. 

Link to Download the Order-https://www.mytaxexpert.co.in/uploads/1784802677_1905.pdf

 

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